Page 1
OM&PM/Class 8b 1
Operations Strategy Process Analysis Lean Operations Supply Chain Management Capacity Management in Services
Quality Management– Class 7b: Quality & the Voice of the Customer
– Class 8a: Control Charts & Voice of the Process
– Class 8b: Paradigms for Continuous Improvement
» Process Capability
» Analog Devices & Continuous Improvement
» Introduce National Printing Company
Operations Management & Performance Modeling
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OM&PM/Class 8b 2
Class 8a: Key Learning Objectives
The role of variability in evaluating performance
A process – in control has only inherent (from common cause) variation
– out of control has variation from an assignable cause
Pareto analysis to identify key causes of error
SPC framework for process control and improvement
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OM&PM/Class 8b 3
Statistical Process Control:Attribute Measurements (p-Charts)
800 of samplein errors 56.14%82.136000
655
errors76.30047.0800
)0181.01(0181.0
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OM&PM/Class 8b 4
Control Chart of errors in Receiving Process
0
5
10
15
20
25
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
Day
Daily Errors
UCL 25.92
LCL 3.28
m 14.56
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OM&PM/Class 8b 5
Errors by Type & Module(Pareto Analysis)
80 % of the errors may be attributed to 20 % of the
causes.
Error Type Number of Errors Percentage
Other 242 36.9Slotter 230 35.1
Letdown 78 11.9Putaway 69 10.5Keying 28 4.3ITR ADJ 8 1.2
Number of Errors by Type
0
50
100
150
200
250
Other Slotter Letdown Putaway Keying ITR ADJ
Module Number of Errors Percent ErrorsModule 1 486 74.2Module 3 169 25.8
0
50
100150
200
250
300
350400
450
500
Module 1 Module 3
Number of Errors by Module
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OM&PM/Class 8b 6
Control Chart Module 1 ErrorsDay Errors
1 22 173 184 215 76 27 108 219 810 911 1112 2413 1614 415 516 417 318 1019 920 1521 2322 1223 1324 1125 926 627 928 1129 1130 631 1832 1533 1034 835 436 437 2038 739 840 641 1842 1843 944 1145 3
0
5
10
15
20
25
1 4 7 10
13
16
19
22
25
28
31
34
37
40
43
Day
Daily Errors in Module 1
UCL 20.5
LCL 1.1
m 10.8
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OM&PM/Class 8b 7
Module 1 of Receiving Process
1. Calculate average proportion of errors per sample:
2. Calculate the standard deviation of proportion defects per sample of 400:
3. Calculate control limits:
4. Plot control chart with control limits 400*(UCL, LCL) = (20.52, 1.08)
UCL p z
LCL p zp
p
= + = 0.027 + 3
= = 0.027 - 3
0 0081 0 0513
0 0081 0 0027
. .
. .
Module 1 is out of control
= ( - )
=. ( -. )
=. p
p p
n
1 027 1 027
4000081
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OM&PM/Class 8b 8
Module 1 Errors by Type
Error Type Number of Errors PercentageSlotter 164 33.7Other 158 32.5
Letdown 77 15.8Putaway 57 11.7Keying 23 4.7
ITR ADJ 7 1.4
Number of Errors by type in Module 1
020406080
100120140160180
Slotter Other Letdown Putaway Keying ITR ADJ
Error Types
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OM&PM/Class 8b 9
Process Capability
Voice of the Customer Voice of the Process
Process Capability
= How well is process capable of meeting customer specifications?
For the Receiving process, customer specifications require no more than 2% errors on any given day.
Proportion of days where errors are beyond customer specifications =
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OM&PM/Class 8b 10
Process Capability: Sigma or ‘z’ Capability
Sigma capability is the number of standard deviations from the mean to the closest specification limit.
Sigma capability of Receiving process =
What if Receiving is to become a 3-Sigma process?
– Target mean =
– Target standard deviation =
Page 11
OM&PM/Class 8b 11
Improving Process Capability
100 130 160
LSL USL
= 10
100 143 160
LSL USL
= 10
LSL USL
= 5
100 130 160
LSL USL
= 5
100 143 160
99.9 % 99.9 %
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OM&PM/Class 8b 12
Magnitude of Difference Between Sigma Levels
# sigma’s # nines Area Spelling Time Distance
1 0 Floor space ofSoldier Field
170 misspelledwords per page ina book
31.75 years percentury
Here to the moon
2 1 Floor space oflarge supermarket
25 misspelledwords per page ina book
0.45 years percentury
1.5 times aroundthe world
3 2 Floor space ofsmall hardwarestore
1.5 misspelledwords per page ina book
3.5 months percentury
London to NewYork
4 4 Your living room 1 misspelled wordper 30 pages
2.5 days percentury
Basel to Zurich
5 6 The button ofyour telephone
1 misspelled wordin a set ofencyclopedias
30 minutes percentury
Leverone toNorris
6 8 diamond 1 misspelled wordin a library
6 seconds percentury
Four steps fromyour chair
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OM&PM/Class 8b 13
99.9% Suppliers
At least 20,000 wrong prescriptions per year
More than 15,000 newborns dropped by doctors or
nurses
No electricity, water or heat for 8.6 hours each year
No telephone service or TV transmission for nearly 10
minutes each week
Two short (or long) landings at O’Hare each week
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OM&PM/Class 8b 14
Why 6-Sigma?
Impact of # of parts/stages in a process
Impact of mean shift
Probability that process/product meets specs3 -sigma 4 - sigma 5 - sigma 6 - sigma
# of steps/parts1 93.3% 99.4% 100.0% 100.0%
10 50.1% 94.0% 99.8% 100.0%50 3.2% 73.2% 98.8% 100.0%
100 0.1% 53.6% 97.7% 100.0%144 0.00% 40.8% 96.7% 100.0%369 10.0% 91.8% 99.9%740 1.0% 84.2% 99.7%
1044 0.1% 78.4% 99.6%1590 0.00% 69.1% 99.5%
19581 1.0% 93.6%42559 0.00% 86.5%
100000 71.2%1000000 3.3%
0.0%
0.0%
0.1%
1.0%
10.0%
100.0%
1 10 100 1000 10000 100000 1000000
# steps/components
Probability that process/productmeets specs
3 -sigma
4 - sigma
5 - sigma
6 - sigma
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OM&PM/Class 8b 15
Relationship Between Sigma Capability, Proportion Defects, and Cpk
LSL m USL
z z
z Sigma Process Probability of meeting specs Defects per million Cpk
z 2 F (z ) - 1 2 - 2 F (z ) z / 31 0.682689480482 317310.519518 0.332 0.954499875928 45500.124072 0.673 0.997300065554 2699.934446 1.004 0.999936627931 63.372069 1.335 0.999999425790 0.574210 1.676 0.999999998020 0.001980 2.007 0.999999999997 0.000003 2.33
Cm m
pk = minLSL
3 ,
USL -
3
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OM&PM/Class 8b 16
Page 17
OM&PM/Class 8b 17
ADI Stock Price Performance
Page 18
OM&PM/Class 8b 18
Key learning objectives: Analog Devices
Methods to drive improvement– visibility: expose the rocks (“mgt. by sight”)
– exploratory stress: crisis (“mgt. by stress”)
– set standards: half live (“mgt. by stretch”)
Short term performance evaluation of complex organizations requires a balanced scorecard
Operational improvement needs to be converted into financial improvement
Page 19
OM&PM/Class 8b 19
Class 8b: Key Learning Objectives: SPC
Specification limits: Voice of the customer Control limits used to verify if process is in control
(internal), i.e., is maintaining capability: Voice of the process
Process capability is a measure of the quality delivered (external): links VoP with VoC
Improving capability may require variability reduction and/or mean shift
Reducing number of stages/parts improves capability
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OM&PM/Class 8b 20
Continuous Improvement:PDCA Cycle (Deming Wheel)
Institutionalize the change or abandon or do it again.
Execute the change.Study the results; did it work?
1. Plan
2. Do3. Check
4. Act
Plan a change aimed at improvement.
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OM&PM/Class 8b 21
Process Improvements at Analog
July 1, 1987 July 1, 1990
Average Yields
July 1, 1987 July 1, 1990
July 1, 1987 July 1, 1990 July 1, 1987 July 1, 1990
Manufacturing Cycle Time
Defects
51%
20%
15 weeks
7 weeks
500 ppm
50 ppm
18.75
6.25
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OM&PM/Class 8b 22
Target Half-Lives
ProjectType
Examples Model HalfLife
ExpectedRange
Singledepartment
Operator ErrorsWork in process
3 months 0-6 months
Crossfunctional
New ProductOutgoing PPM
9 months 6-12 months
Multi Entity Vendor QualityWarranty Costs
18 months 12-24 months
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OM&PM/Class 8b 23
Continuous Improvement: Benchmarking
1. Identify those processes needing improvement.
2. Identify a firm that is the world leader in performing the process.
3. Contact the managers of that company and make a personal visit to interview managers and workers.
4. Analyze data
